Legal challenges could upend San Francisco’s new Airbnb law

Cathryn Blum prepares a spare bedroom for an Airbnb guest at her Potrero Hill home in San Francisco. She is one of the few property owners that have followed the rules and registered as a licensed host with the city.

The new rule is no different than requiring car-rental companies to verify that customers have driver’s licenses, said Supervisor David Campos, a longtime Airbnb critic who spearheaded what he calls “commonsense changes” with Supervisor Aaron Peskin.

But Airbnb host Keith Freedman had a different analogy. If crime increases in a neighborhood, “I want more police there, not a law that local businesses have to install cameras and hire their own security,” said Freedman, the policy chairman of the Home Sharers Democratic Club, which represents vacation hosts. “Cities should enforce their own laws.”

Few observers expect Airbnb to simply comply by dumping the three-quarters of its San Francisco listings that are unregistered. It may mount a legal challenge before the amendment’s July 27 enactment — something that could drag on in court for years. Or it could come to some kind of agreement with the city, working to streamline registration — also a goal of last week’s legislation — and offer more cooperation in enforcing the law.

Legal challenges could upend San Francisco’s new Airbnb...

1of2Local travel guides are available for Airbnb guests staying at Cathryn Blum's Potrero Hill home in San Francisco, Calif. on Saturday, June 11, 2016. Blum is one of the few property owners that have followed the rules and registered as a licensed host with the city.Photo: Paul Chinn, The Chronicle

2of2Local travel guides are available for Airbnb guests staying at Cathryn Blum’s Potrero Hill home in San Francisco. Blum, one of the few property owners that have registered as a licensed host in the city, says that San Francisco should consider exemptions for those who host only a few days a year.Photo: Paul Chinn, The Chronicle

In April, Airbnb vowed to purge illegal rentals from its site. It said it has since jettisoned 164 San Francisco listings that may have been removing permanent housing from the city’s stock, a primary consideration for lawmakers.

“We are currently considering all options to stand up for our community,” the San Francisco company said. Both Expedia’s HomeAway/VRBO and TripAdvisor’s FlipKey said they are assessing San Francisco’s new law.

Legal experts said San Francisco’s latest ordinance could get tripped up by a federal law that shields Internet companies from liability for content on their sites, namely Section 230 of the Communications Decency Act. Some have called the act “the First Amendment of the Internet.”

“Section 230 immunizes a platform for any types of defects or omissions in content provided by third parties,” said David Greene, senior staff attorney at the Electronic Frontier Foundation.

Campos said he kept the federal statute in mind when crafting the law and that he thinks it will withstand legal challenges. Internet companies that simply publish listings, such as Craigslist, would in fact be shielded by the act. However, companies such as Airbnb that engage in short-term rentals as their primary business, would not.

“Content has nothing to do with it,” he said. “We’re talking about regulating the conduct these platforms engage in to participate in this business. If a company enters the short-term rental business, we have every right to expect and require certain conduct.”

Greene said that point is in dispute. Companies that handle payment processing may or may not be covered by the federal law. (Airbnb handles all payments on its site; HomeAway handles about a third of payments for its hosts; and FlipKey said it handles payments for the majority of its hosts.) StubHub and eBay successfully used Section 230 as a defense in court against restrictions on some of their transactions. The Electronic Frontier Foundation stood behind Visa and MasterCard when they faced legal challenges for processing donations to WikiLeaks, he said.

Eric Goldman, a law professor at Santa Clara University, said there are two other legal doctrines in addition to Section 230 that could trip up San Francisco’s law.

One is the First Amendment. Companies that list vacation rentals “are structurally just publishing other people’s content, so we have all the rules that apply to free speech,” he said. “In cases like this, it would be treated as dissemination of advertising, which is subject to lower First Amendment scrutiny, but still protected.”

Cathryn Blum prepares the living room of her Potrero Hill home for an Airbnb guest in San Francisco, Calif. on Saturday, June 11, 2016. Blum is one of the few property owners that have followed the rules and registered as a licensed host with the city.

Photo: Paul Chinn, The Chronicle

The other is the Constitution’s Commerce Clause. Under the “dormant Commerce Clause” interpretation, the law says that only Congress, not the states, can regulate interstate commerce. It’s designed to avoid a patchwork of laws from every city, state and country that would “create such a thicket that a national player can’t find a way to cope,” he said.

Likewise, Gautam Hans, policy counsel at the Center for Democracy and Technology, said he thinks San Francisco is running afoul of Section 230’s shield. “I understand that the city is frustrated, but I think a cooperative agreement (with companies like Airbnb) would be a better way to create a system that’s enforceable,” he said.

Whatever happens here is likely to have ripple effects.

“The reason Airbnb is fighting this tooth and nail is they know if they have to do this in San Francisco, that they’ll have to do it in other parts of the country or world,” Campos said. “This could be a model.”

In fact, both Chicago and Los Angeles are considering similar legislation that would put Airbnb and other sites on the hook to police themselves.

In February, Cathryn Blum was among the first San Francisco hosts to trot off to City Hall for a business license and the Planning Department for a registration number. “I like doing things properly and legally,” she said. “I thought the legislation at that time was reasonable. We wanted to come in from the cold and didn’t want to be doing this underground.”

But 16 months later, she remains in a minority, as fewer than a quarter of vacation hosts have complied with the requirement that they register with San Francisco. Blum, who is active in the host community, thinks that the city should consider ideas such as a grace period for new hosts to register, exemptions for those who host only a few days a year, and allocating more resources to enforcement.

“There’s a danger the new legislation will push bad actors onto other platforms that are less responsible,” she said. “It could create a new black market” for vacation rentals.

Carolyn Said covers the on-demand economy (new marketplaces such as Uber, TaskRabbit and Airbnb that let people rent their time, goods and services), the impacts of automation and AI on labor, and the world of autonomous vehicles. Previously she covered the housing market and foreclosure crisis, winning awards for stories that shed light on the human impact of sweeping economic trends. As a business reporter at The Chronicle since 1997, she also has covered the dot-com rise and fall, the California energy crisis, the corporate malfeasance scandals, and the fallout from economic downturns.